Laws, Regulations & Annotations

Business Taxes Law Guide – Revision 2015

Sales and Use Tax Annotations

295.0000 GROSS RECEIPTS

Annotation 295.1310

(f) COSTS AND EXPENSES

295.1310 CD-ROM Manufacture. A taxpayer enters into contracts to produce CD-ROMs for customers. It does not manufacture the disks itself, but subcontracts with out-of-state manufacturers. Molds and silk screens are used in the manufacturing process but do not become a part of the finished product. The out-of-state manufacturer charges a separately stated "mastering fee" for the fabrication of molds and silk screens, but it retains title to them. In turn, the taxpayer generally charges its customer a separately stated "mastering fee." However, in some cases, a customer may be quoted a lump-sum price for the "mastering fee" and disks.

The "mastering fee" whether separately stated or not is part of the charge for the taxpayer's retail sale of the disks. It is immaterial that the molds or silk screens are stored or used outside the state.

The taxpayer also fabricates films from customer furnished artwork. The films are shipped to out-of-state vendors who use them in preparing silk screens and printing plates for disk manufacture and package printing. The customers retain ownership of the films, but generally do not take possession of them. If the taxpayer delivers the films to the customer in California, tax applies to the gross receipts. If the taxpayer ships the films out of state at the customer's direction and the California customer certifies that the films will not be used in California, no tax is due. 4/10/95.